All Roads Lead to Russia when it comes to the Financial Collapse of this Tiny Island Country
Can I get a Cyprus folk music drum roll please?
- Cyprus is the third-largest island in the Mediterranean. It is a Presidential Republic with Executive, Legislative, and Judicial branches. Crack open the binding on your U.S. Civics textbook if the separation of powers concept is foreign to you.
- SAT analogy anyone? “Cyprus is to Russia as the Cayman Islands are to what? “Ding, ding, ding” blasts the bell if you answered “The U.S.”
- Both Cyprus and the Cayman Islands are subtropical climates where boutique offshore banks cater to kosher and shady investors. Russian billionaires have long used Cyprus as a financial hub, avoiding various excise taxes imposed on international transactions. Russian President Vladimir Putin reportedly had around 40 million of his own money lost in Cyprus’s economic black hole.
- The euro zone financial and banking crisis that hit Cyprus in June 2012 is scarier than anything Stephen Hawkings could have predicted. A key problem is the mammoth size of Cyprus’s banking sector, which is eight times larger than the economic output of a country that has only 860,000 people.
- Tax evading individuals have been saturating Cyprus’s sandy shores with shiny rubles. “Officially, only about 40 percent of the deposits in Cypriot banks are from nonresidents, which would imply resident deposits of almost 500 percent of the GDP, which is crazy,” wrote Paul Krugman of The New York Times in “Cyprus: The Sum of All FUBAR.”
- Last summer, Cyprus’s banking system was on the brink of collapse and the country could have become the first to crash out of the European single currency.
- But on March 25 crisis was averted, sort of, when Cypriot President Nicos Anastasiades struck a deal with EU, ECB, and IMF leaders to shut down its second-largest bank and inflict heavy losses on uninsured depositors in return for a 10 billion euro bailout.
- The deal will drastically prune the size of Cyprus’s banking sector, which has been bloated by billions of dollars from Ivan the Terrible’s descendants.
- The bailout signals the bittersweet end of Cyprus as a European hub for offshore finance. The latest headlines reveal Cyprus is expected to confirm major depositors in its biggest bank will lose at least 60 percent of their savings over 100,000 euros. But there is a sleek and chic piggy bank for those financiers to move what money they have left into if they are so inclined.
And The #1 Thing You Should Know About Cyprus Is…
- Their economic bailout affects you! The bailout could potentially destabilize the EU and if the euro dies, our currency will be devalued, which means higher costs for Americans. But there is a shining beacon of hope for Russians looking to unload their cash: Russian billionaires and oligarchs are putting down real estate roots in record numbers in Manhattan, far away from the growing fiscal dud that is the euro zone. This phenomenon would explain why a 500 square foot studio apartment in Manhattan with communal bathroom and view of a dumpster is listed on the MLS for $950,000. I just hope European investors do not drown our financial shores as they did Cyprus’s.